Technology-related expenses may rise by up to 20 percent a year over the next two to three years for banks in South and Southeast Asia, according to S and P Global Ratings.

In a report, the debt watcher said higher technology costs would likely come as regulators in the region are calling on banks to address tech outages or expect firmer penalties.

Regulators are also stepping up oversight of digital payment systems, online banking platforms and cryptocurrency exchanges amid concerns about data breaches, money laundering and other financial crimes.

'We see banks in South and Southeast Asia continuing to invest in technology to ensure system stability and robust disaster-recovery planning,' S and P Global Ratings analyst Nikita Anand said.

Technology costs accounted for about 12 percent of operating expenses on average for their sample of rated banks, she said.

Over the last two years, the technology costs of banks in countries such as Malaysia and Singapore have already increased by 13 percent and 20 percent, respectively.

'Although costly, such investments are necessary. Otherwise, banks face stricter actions--such as bans on new businesses or additional capital requirements. This could have a material impact on growth and profitability, and in turn affect ratings,' Anand said.

According to the credit rater, the demand for online banking services soared since the pandemic and led to a rising number of digital transactions over the past years.

In the Philippines alone, the share of digital payments to total retail transactions jumped to 52.8 percent in 2023 from 42.1 percent in 2022, slightly exceeding the Bangko Sentral ng Pilipinas (BSP)'s goal of hitting 50 percent by 2023.

The surge in digital transactions has prompted regulators in South and Southeast Asia to increase their scrutiny of banks' technology infrastructure and response to service disruptions.

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